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The Government’s New Stance That the Non-Willful Civil FBAR Penalty Applies to Every Account on an Untimely-Filed FBAR, Rather Than to the Single Untimely FBAR Form

By: Caroline Rule
Journal of Tax Practice & Procedure
Summer 2020 Edition

Recent litigation has focused on the government’s new position that the $10,000 non-willful civil FBAR penalty applies per account listed on an non-willfully untimely-filed annual FBAR—a Report of Foreign Bank or Financial Accounts that must be filed by a U.S. person “who has a financial interest in or signature authority over foreign financial accounts” if the aggregate value of the accounts “exceeds $10,000 at any time during the calendar year.” The FBAR is filed in the following calendar year. Until recently, the rule recognized by courts has been that the non-willful civil penalty applies per single untimely filed FBAR form, not per account listed on that FBAR.

This issue, of first impression in an appellate court, is pending before the Ninth Circuit in J. Boyd. The same issue is currently before the Eastern District of Texas in Bittner, and the Central District of California in Patel, et al

In Boyd, the taxpayer did not file timely FBARs reporting 13 foreign accounts, but was not willful. The government believes that it was proper when, “[i]n assessing the thirteen separate FBAR penalties against Boyd, the IRS treated each account that was not listed on a timely filed FBAR as a separate non-willful violation.” The District Court agreed, holding that: “Each non-willful FBAR violation relates to a foreign financial account, and the IRS may penalize each such violation with a penalty not to exceed $10,000.”

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Robert M. Russell participated in a panel entitled "Tax Day 2020: Filing and Payment Deadlines" at the ABA Section of Taxation's Virtual May Meeting on June 10, 2020

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Pro Bono Spotlight: IRS Virtual Settlement Days

Kostelanetz & Fink attorneys Yoram Keinan and Robert Russell were proud to volunteer for the IRS’s first-in-the-country Virtual Settlement Days with the University of Michigan Law School’s Low-Income Tax Clinic (LITC) on May 9 and May 12, 2020.

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IRS Continues to Issue Guidance for International Taxpayers in Light of COVID-19

IRS Continues to Issue Guidance for International Taxpayers in Light of COVID-19

As COVID-19 continues to impact daily life, the IRS has published guidance to address the tax consequences for certain international taxpayers. Recent travel restrictions could require individuals to remain in locations longer than expected, resulting in a changed tax status. In order to mitigate this result, the IRS provided relief provisions to put certain affected persons in the same U.S. tax position they would have been in, but for the COVID-19 crisis.

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Michael Sardar presented a webinar entitled "Penalty Standards for the Taxpayer and the Preparer" for The CPA Academy on June 11, 2020

When the IRS audits a taxpayer and determines that additional tax is due, the taxpayer may be subject to penalties in addition to the tax due. Further, the tax practitioner involved in preparing that tax return may also be subject to penalties. This course covered the standards applicable to both the taxpayer and tax practitioner when the IRS determines whether to impose penalties. Mr. Sardar reviewed the relevant standards, including reasonable basis, substantial authority, and how to make adequate disclosure.  Knowing and applying theses standards will help the practitioner and taxpayer avoid IRS penalties.

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Paycheck Protection Program Flexibility Act passed June 5, 2020

The Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) was signed into law by President Trump on June 5, 2020. The PPPFA intends to provide flexibility for businesses making use of Paycheck Protection Program (“PPP”) funds by:

  1. extending the “covered period;”
  2. increasing the amount of loan forgiveness that may be attributable to non-payroll costs;
  3. extending the date by which employers must restore full-time employee (“FTE”) levels;
  4. creating a new safe harbor for inability to restore FTE levels;
  5. extending the loan repayment period to five years; and
  6. deferring payroll tax.  
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Nicholas S. Bahnsen moderated an American Bar Association panel entitled "Ethical Obligations and COVID19: What Tax Practitioners Need to Know" on June 4, 2020

What should we be on the lookout for to ensure we are not helping our clients participate in or become the victim of fraud considering the CARES Act? How should practitioners ensure we are meeting both IRS and court deadlines? How should we ensure we are meeting our ethical obligations to communicate with our clients? Nicholas S. Bahnsen moderated a panel discussing these timely issues. 

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Foreign Asset Reporting and U.S. Territories

By Usman Mohammad
The ABA Tax Times
Vol. 39 No. 3 - Spring 2020

Puerto Rico, American Samoa, Guam, The United States Virgin Islands, The Northern Mariana Islands—these are all United States territories or possessions. Individuals born in these territories are deemed by law to be either United States citizens or United States nationals. Yet these locations are separated from the contiguous United States by vast bodies of water. Many U.S. citizens from the contiguous United States have never been to any of the territories. Travel from the contiguous United States to any one of these territories involves a multiple-hour trip by either air or sea. In many ways, these locations seem foreign and exotic to most Americans.

The FBAR, Form 8938, Form 3520, Form 5471, Form 8621—these are all information reporting forms used to report various types of foreign assets to different bureaus within the U.S. Department of the Treasury, such as the Internal Revenue Service (the IRS) or the Financial Crimes Enforcement Network (FinCen). When most people think of “foreign” assets, they think of assets located in foreign countries, such as Switzerland, Israel, China, the United Kingdom, or Russia.

What about an asset—such as a bank account—located in a U.S. territory or possession? Is it a foreign or a domestic asset? The answer, unfortunately, is not so simple.

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Caroline Ciraolo contributed to ABA Tax Section Comments on proposed changes to Tax Court Rule 24

Caroline Ciraolo made substantive contributions to the American Bar Association Taxation Section Comments on the proposed changes to Tax Court Rule 24. The comments were formally submitted to Chief Judge Foley of the U.S. Tax Court on June 1, 2020.

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Caroline Ciraolo Featured on ACA TaxCast on May 31, 2020

Caroline Ciraolo was interviewed for the American Citizens Abroad (ACA) TaxCast podcast. Part 1 of her interview was posted May 15, 2020, and Part 2 was posted on May 31, 2020. During Part 2 of the program, Ms. Ciraolo takes a "deeper dive" into the types of tax professionals and government officials that may play a role in a client’s tax matters, the nature and risks of an “eggshell” audit, the scope of applicable privileges, best practices for vetting clients and managing an examination or investigation, and much more. 

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